Weekly Roberts Report
US - Agricultural US Commodity Market Report by Mike Roberts, Commodity Marketing Agent, Virginia Tech.With the exception of the May ’09 Lean hog contract commodity prices were stridently lower across the
board on Monday amid concerns over uncertainty that the U.S. House would reject the government
bailout proposal. In these volatile times it seems the chart signals and fundamentals are at the mercy of
politicasters and an economy that, according to Greenspan was once quite “exuberant.“
Don’t know if a quote by Laurel and Hardy is seen much in a market report but I feel it appropriate to say
to someone, “Well, here’s another nice mess you’ve gotten me into!“ - Oliver Hardy in Another Fine Mess (1930)
LEAN HOGS on the CME closed down on Monday except for one lone contract, May ’09 futures. The
OCT’08LH contract closed at $68.55/cwt, off $1.075/cwt but only $0.100/cwt lower than last Monday.
DEC’08 futures closed down $1.000/cwt at $65.05/cwt; off $2.300cwt from a week ago. Last Friday’s
USDA quarterly Hogs and Pigs report is viewed mostly neutral with numbers coming in near
expectations. As of September 1, USDA on Friday reported the U.S. hog supply at 102% of a year ago
with the breeding herd posted at 97% of last year and market-ready hogs 103% of last year. The smaller
breeding herd was supportive of deferred months. USDA put Friday’s pork carcass cutout at $74.23/cwt,
off $0.52/cwt. The latest CME Lean Hog index was placed at $71.58/cwt, up $0.77/cwt. Cash hogs were
weaker amid light trading and are expected to remain that way through midweek as packers work with
near breakeven margins. According to HedgersEdge.com, the average pork plant margin lowered
$10.05/head to a positive $0.55/head based on an average buy of $52.84/cwt vs. the average breakeven of
$53.06/cwt. It is a good idea to sell hogs when ready instead of holding them to heavier weights like livehog
market data indicates. Feed input pricing opportunities may be present until the bail out.
CORN futures on the Chicago Board of Trade (CBOT) finished limit down on Monday. The DEC’08
contract closed at $5.130/bu, down 30.0
¢
/bu from Friday and 45.5
¢
/bu lower than a week ago. MAR’09
corn futures closed at $5.310/bu; off 30.0
¢
/bu and 45.25
¢
/bu lower than this time last Monday. The
30.0
¢
/bu trading limit will be increased to 45.0
¢
/bu for Tuesday’s trading. Spillover uncertainty about
U.S. and world economic outlook amid good crop weather and no prospects for frost in the near future
pressured commodities. However, not all is gloomy, near the end of trading cash bids for corn
strengthened because of end-user interest in these lower prices. Late Monday USDA put the U.S. corn
crop at 9% harvested vs. a 21% 5-year average for this time of year and 29% rate this time last year.
Corn-inspected-for-export was placed at 40.164 mi bu vs. 28-32 mi bu due to a weakened U.S. dollar.
CFTC’s Commitment of Traders report dated 9/23 had large speculators increasing net bull positions by
12,200 to 62,927 lots. The next report will most likely show a decrease in net bull positions as funds sold
between 7,000 and 8,000 lots as they liquidate positions while the money flows out of financial markets.
Those who have up to 70% of the ’08 crop priced today are in good shape.
SOYBEAN futures on the Chicago Board of Trade (CBOT) finished limit down on Monday. NOV’08
soybean futures closed at $10.940/bu, off 70.0
¢
/bu and $1.11/bu lower than last Monday. The JAN’09
soybean contract closed at $11.100/bu; off 70.0
¢
/bu and $1.12/bu lower than a week ago. Tuesday’s
trading limit will expand to $1.05/bu. Soybeans-inspected-for-export were placed at 7.524 mi bu vs.
estimates for between 7-11 mi bu. Crop weather is encouraging for the U.S. Midwest soybean crop.
USDA placed the U.S. soybean crop at 9% harvested vs. a 24% harvested rate this time last year and a
21% -5-year average. The market did not expect to see much of a harvest figure reported. As with corn,
the CFTC Commitment of Traders report as of 9/23 showed large speculators increasing net bull positions
by 4,600 lots to 22,318 contracts. This kind of action may not hold up as funds sold 5,000 contracts and
liquidity leaves those markets. Synthetic trading and speculative long liquidation were the elements of
the day. November ’08 futures synthetically traded a range of $10.85/bu - $10.90/bu according to some
floor sources. Futures are said to trade synthetically when a position is created by combining call and put
options for the purpose of mimicking the payout schedule and characteristics of a futures contract. A
synthetic long futures contract is created by combining long calls and short puts. A synthetic short futures
contract is created by combining short calls and long puts. In order for both combinations to be identical
to a futures position, the options must have the same expiry dates and strike prices. This kind of trading
predominates when traders are looking to avoid a huge initial investment while managing risk. Synthetic
futures are said to provide an opportunity to manage risk without “betting the farm.“ With these volatile
prices it is good if you have priced 60% of the ’08 crop already.
WHEAT futures in Chicago (CBOT) closed down on Monday. The DEC’08 contract closed at
$6.680/bu, off 48.0
¢
/bu from last Friday and 69.75
¢
/bu lower than a week ago. JULY’09 wheat futures were down 45.5
¢
/bu at $7.160/bu and 66.25 cents lower than this time last week. Increasing economic
fears pressured U.S. and global wheat markets. Wheat-inspected-for-export was placed at 22.196 mi bu
vs. expectations for between 22-26 mi bu. News that Argentina’s wheat crop was suffering drought stress
was supportive for prices. However, better wheat-crop weather forecasts were in the making for
Australia’s wheat crop. The CFTC supplement on Friday showed large speculators reducing net bear
positions in CBOT wheat by 4,000 lots to 35,741 contracts as of 9/23. Funds sold 4,000 contracts. As
with all the markets, traders said they were watching the U.S. Congress rejection of the $700 billion bill to
liberate the financial industry from the deluge of bad debt amid ever shrinking credit lines. According to
Dan Basse, president of AgResource Co., “The fundamentals are out the window. It’s all about credit
lines and index and hedge funds getting out, and crude oil.“ Crude oil was down $9/barrel. It would be a
good idea to get up to 10%-20% of the ’09 wheat crop priced.
